A corporation creates and maintains certain documents, one of which is its bylaws. This document is created shortly after the corporation is formed and, in general, sets the rules and regulations for operating the corporation. A shareholder agreement is an optional document that a corporation's shareholders may use to create certain rights and obligations among themselves. This agreement is typically used when a corporation has a small number of shareholders who actively participate in the corporation's business.

Forming a Corporation

The primary corporate document is its articles of incorporation. This document must be filed with the state agency that oversees corporations in order to bring the corporation into existence. Shortly after the articles are filed, the corporation's shareholders or initial board of directors hold an organizational meeting at which the corporation's bylaws are adopted. The organizational meeting also may include appointment of corporate officers -- president, treasurer and secretary -- and issue of stock certificates to the shareholders.

Purpose of Corporate Bylaws

The corporate law in every state requires a corporation to follow certain rules, such as holding an annual shareholders' meeting and maintaining minutes of meetings. The corporation's bylaws specify the rules and guidelines for adhering to these rules. For example, the bylaws will state when and where the annual shareholders' meeting will take place, how to give notice for a special shareholders' meeting, how to call a directors meeting, quorum requirements for meetings and voting requirements for electing director. The bylaws can include any provisions required for the corporation's operation, so long as the provision does not violate state law or conflict with the corporation's articles of incorporation.

Shareholders' Agreement Basics

A shareholders' agreement will specify aspects of the shareholders' relationship to each other regarding matters that are not typically included in a corporation's bylaws. For example, an important part of a shareholders' agreement is the buy-sell provision that states what happens when one of the shareholders can no longer participate in the corporation's business due to death, disability, bankruptcy or other situation. The shareholders' agreement also is used to ensure that shareholders are actively involved in running the company. The agreement can include provisions that require a shareholder to be on the board of directors and appointed as an officer of the corporation. If a shareholder does not want further involvement in operating the corporation, the shareholders' agreement can require that shareholder to also sell his shares back to the corporation or remaining shareholders.

Conflict Between Bylaws and Shareholders' Agreement

A shareholders' agreement also should include a provision regarding how to handle a conflict between its provisions and the corporation's bylaws. In most circumstances, the shareholders' agreement should take priority, because the agreement is specifically designed to control the shareholders' relationship. Once a conflict is disclosed between the bylaws and shareholders' agreement, the bylaws should be amended to remove the conflict.